108,000 Jobs Lost in March, U.S. Says

By DAVID LEONHARDT

Published: April 5, 2003

The job market continued to deteriorate in March as the economy lost 108,000 jobs, the government reported yesterday, raising worries that the United States is closer to slipping into a recession than it has been for more than a year.

The unemployment rate remained at 5.8 percent last month, largely because of a rise in the number of people who are not looking for work and are thus considered to be outside of the labor force.

''Job creation is the engine of the economy,'' said Richard Yamarone, an economist at Argus Research in New York, ''and that engine is running out of steam.''

Two years have now passed since the nation's payrolls peaked, and employment has fallen by almost 2.4 million jobs during that span, according to the Labor Department's recently revised numbers. The loss -- 1.8 percent of employment -- is much worse than it was during the so-called jobless recovery of the early 1990's, when employment never fell by more than 1.3 percent over a two-year period.

The nation employs fewer people than it has at any point since late 1999, its longest stretch without job growth in 20 years.

Last month's job losses cut across almost every sector of the economy. Manufacturers reduced employment for the 36th consecutive month. The vast service industry, usually a source of stability, has cut 121,000 jobs in the last six months, with department stores, restaurants, airlines and hotels all paring their payrolls in March. After adding jobs through last year, local and state governments have also begun to make cuts to close budget deficits.

But the economy still does not seem to have fallen into a recession. The average workweek increased last month, a sign that demand for new products has not dried up.

In addition, the call-up of about 210,000 reservists to serve in the military contributed to the loss of 465,000 jobs in February and March, the Labor Department said.

In Washington, Secretary of Commerce Donald L. Evans called the jobs report further evidence that Congress should pass President Bush's tax-cut proposal, which lacks the support to pass in its current form. House Democrats on the Joint Economic Committee attributed much of the slump in jobs to Mr. Bush's economic policies, saying that recoveries are usually in full swing two years after an economic peak.

The last recession began in March 2001. Economic growth resumed in late 2001, although it has not been strong enough to cause job growth.

The financial markets reacted modestly to the March employment report. Stocks were little changed, with the Standard & Poor's 500-stock index and the Dow Jones industrials edging up less than 1 percent.

The conflict with Iraq seems to have hurt the economy by helping cause a rise in oil prices early this year and also by heightening uncertainty. Many economists say the war has made executives wary of expanding their companies and kept consumers at home, near their televisions and away from public places. But the war's effect is difficult to measure.

''The economy has appeared to hit a soft spot,'' said Chris Varvares, president of Macroeconomic Advisers, a research firm in St. Louis. ''The $64,000 question is how much of that is due to the war and how much is due to underlying weakness.''

After a binge of spending on new equipment and new workers in the late 1990's, many businesses still have more production capacity than they can profitably use. They have also continued to become more efficient over the last two years, able to increase their sales while cutting workers.

Economists said yesterday that while the Federal Reserve remained unlikely to reduce the federal funds rate on overnight loans between banks when it meets next month, the jobs report increased the chance of a cut.

The Fed has lowered rates 12 times since the start of 2001, to the lowest level since 1961. Alan Greenspan, the Fed chairman, has said that he thinks the war is the biggest drag on growth.

Fed officials may also be resisting a rate cut -- which reduces the cost of borrowing, encouraging people to spend money -- because they are wary of reducing their benchmark rate to zero. Lehman Brothers economists said yesterday that the Fed would surely have lowered the rate in recent weeks if it had not already been so low.

Once it reaches zero, stimulating the economy becomes trickier, although Mr. Greenspan and others have emphasized that it is still possible.

In a sign of the economy's weakness, the number of people not in the labor force has jumped since January. Five million people who are not looking for work -- and thus not counted in the jobless rate -- would like a job, up from 4.7 million in January, according to the Labor Department's survey of households.

''It's a very negative report,'' John H. Makin, a resident scholar at the American Enterprise Institute, a research group in Washington, said yesterday. ''The economy is weakening faster than it was at the start of the recession in March 2001 -- perhaps faster.''

At 5.8 percent, the jobless rate remains lower than it was after every other recession of the last 30 years. The exodus from the labor force has helped keep it relatively low, but so have the lingering effects of the strong growth of the 1990's, leaving the economy in better shape today than it was in the mid-1970's or early 1980's.

The increase in the workweek -- to 34.3 hours, from 34.1 in February -- helped weekly earnings of production and nonsupervisory employees to rise last month, strengthening household finances at a time when consumer spending has been weakening.

The Labor Department said it did not know the precise effect that the call-up of reservists had on the employment numbers. Since mid-March, when the government conducted its employment survey, the military has called up even more reservists, meaning that the war is continuing to affect employment levels directly.

Dean Baker, an economist at the Center for Economic and Policy Research, a research group in Washington, noted that the survey took place before fighting in Iraq began. As a result, he said, the March report did not include recent job losses at airlines and elsewhere.

Mortgage brokers and builders, benefiting from the resilient housing market, and hospitals and other health care companies were some of the few industries to add workers.

Temporary-help agencies, whose employment level is considered a signal of the economy's short-term direction, cut 48,000 jobs, or almost 1.7 percent of their work force.

''Businesses simply aren't sufficiently profitable to fuel new hiring,'' Mr. Yamarone of Argus Research said. ''Why would you when you have slipping demand, skyrocketing productivity and global overcapacity?''